The Shanghai Composite Index (SHCOMP) rose 1.6 percent to 2,218.32
at the close. The measure plunged 2.6 percent yesterday after a
gauge of manufacturing missed estimates. The index trades at
12.1 times reported earnings, approaching the lowest level since
Dec. 24. The CSI 300 Index advanced 1.9 percent to 2,495.58.

“Stocks have fallen a lot already and investors are
looking for a good point to enter,” Tang Yonggang, an analyst
at Hongyuan Securities Co. in Beijing, said by phone today.
“They think it’s cheap enough now and technical support is
strong at 2,100.”

The Shanghai Composite has slumped 8.9 percent from a Feb.
6 high on concern slowing growth will hurt earnings. China’s
economy expanded 7.7 percent in the first quarter, missing
estimates, as industrial production and fixed-asset investments
in March fell short of forecasts. The preliminary reading of a
Purchasing Managers’ Index fell to 50.5 for April from 51.6 in
March, according to a report yesterday from HSBC Holdings Plc
and Markit Economics, compared with the 51.5 median forecast.

Telecom Rally

A gauge of telecommunications stocks rose 5.9 percent, the
most among 10 industrial groups on the CSI 300.

Fiberhome, which designs and makes telecom producers,
surged 7.1 percent to 29.26 yuan, the most since Feb. 21, 2011.
First-quarter net income will probably rise 24 percent from a
year earlier, according to data compiled by Bloomberg. Chengdu
Dr Peng, which makes networking systems, jumped 9.8 percent to
9.49 yuan, the most since Sept. 15, 2010.

“There’s speculation that mobile-phone operaters will
start to bid for 4G equipment soon,” said Wu Kan, a Shanghai-
based fund manager at Dazhong Insurance Co., which oversees $285
million. “The telecommunication industry is a bright spot for
investment this year. As the bidding starts, telecom investment
will pick up and benefit equipment makers.”

Smaller Companies

China Mobile Ltd. will boost capital spending by 49 percent
this year as it shifts to a 4G network. The company may invite
bidding on construction projects for 4G base stations in the
middle of the second quarter, the Economic Information Daily
reported April 19, citing an unidentified person.

Zhejiang Dahua Technology Co. led gains for technology
companies, rising 6.2 percent to 40.44 yuan, a record high.
Western Mining advanced 1.8 percent to 6.92 yuan. The company’s
first-quarter net income more the doubled, according to a
statement filed to the Shanghai Stock Exchange.

Du Meng, China’s top-performing fund manager in 2013, says
he’s favoring technology, media, drug, environmental protection
and alternative energy stocks as they are less dependent on
economic growth for earnings. These industries will outperform
companies whose earnings are most reliant on investment and
exports this year, Du said in an e-mail yesterday.

Chinese stocks are becoming attractive with the decline in
equity valuations and corporate profit growth poised to level
out, according to Goldman Sachs Asset Management.

Chinese earnings growth will drop to about 15 percent to 20
percent, from around 20 percent to 30 percent, Alina Chiew,
Goldman Sachs Asset Management’s head of Greater China equity,
told reporters in New York.

Australia Investment

“We are currently at a trough of the earnings and
valuations cycle,” she said. “The market needs to wean itself
off expectations of double-digit growth out of China.”

Chinese regulators have slowed approvals of investment
quotas for foreigners, adding downward pressure to a stock
market that has slumped the past two months on signs that the
nation’s economic recovery is faltering.

The State Administration of Foreign Exchange approved an
average quota of $880 million in February and March, compared
with an average of $2.3 billion in the previous four months,
according to data compiled by Bloomberg.

Australia’s central bank plans to invest about 5 percent of
its foreign currency reserves in China as it deepens ties with
the world’s second-largest economy, Deputy Governor Philip Lowe
said in a speech today in Shanghai.

The decision “represents the first time that the RBA will
have invested directly in a sovereign bond market of an Asian
country other than Japan,” Lowe said.

Volatility Jumps

The cost of hedging against swings in Chinese equities has
risen to the highest level in almost four years relative to
other emerging markets on signs the world’s second-largest
economy is losing momentum.

The difference in implied volatility for the iShares FTSE
China 25 Index Fund (FXI) and the iShares MSCI Emerging Markets Index
Fund has more than doubled to 5.12 since Feb. 1, based on data
compiled by Bloomberg on three-month contracts with an exercise
price closest to the shares. That’s the biggest gap since August
2009 for the measure of options costs.